RAMALLAH, West Bank (Reuters) - Palestinians accused U.S. Republican presidential candidate Mitt Romney of racism on Monday by suggesting disparities between the Israeli and Palestinian economies had cultural roots, while ignoring Israel's occupation of the West Bank.

In a speech to fundraisers in Jerusalem, Romney, visiting Israel to boost his electoral credentials ahead of a November 6 election bid against President Barack Obama, said Israel's Gross Domestic Product (GDP) was about twice that of the Palestinians.

He said Israel's GDP per capita was $21,000, while for Palestinians it was $10,000, and called it "a dramatic, stark difference in economic vitality".

He added: "Everyone knows that the Palestinians cannot reach their full potential given the Israeli restrictions imposed on them."

Romney made no reference to Israel's tight control of most territory where Palestinians live, the West Bank, since capturing it in a 1967 war. Western-backed peace talks aimed at Palestinians establishing a state there collapsed in 2010.

The figures Romney gave also seemed at odds with Western estimates suggesting the GDP gap is in effect much wider, with the U.S. Central Intelligence Agency estimating Israel's at $31,400 in 2011, and the Palestinians' at about $2,900 for 2008.

Romney went on to say at the event where he reportedly raised more than $1 million for his campaign, that "if you could learn anything from the economic history of the world it's this: culture makes all the difference.... I recognize the hand of providence in selecting this place".

Romney did not travel to the nearby West Bank during his two-day stay in Israel, finding time only for a brief meeting with Palestinian Prime Minister Salam Fayyad. He later flew to Poland on the last leg of his international tour.

The controversy he kicked up among Palestinians followed irritation in Britain last week when he questioned London's readiness to stage the Olympic Games.

JERUSALEM DISPUTE

Palestinians also accused Romney of undermining peace prospects in a speech he made on Sunday, when he called Jerusalem "the capital of Israel", ignoring their own claims to the city and most world opinion.

"We condemn his statements. Those who speak about the two-state solution should know that there can be no Palestinian state without East Jerusalem," Erekat said.

"What this man is doing here is just promoting extremism, violence and hatred, and this is absolutely unacceptable," Erekat said. "His statements are just rewarding the occupation and aggression."

Israel seized eastern Jerusalem in 1967 and annexed it as part of its capital in a move never recognized internationally. A U.N Security Council resolution condemns a 1980 Israeli law that declared Jerusalem its "complete and undivided" capital.

Most countries, including the United States, have not recognized Israel's declaration and have kept their embassies in the coastal city of Tel Aviv.

Previous U.S. presidential candidates, including Senator Obama in June 2008, have referred to Jerusalem as Israel's capital ahead of elections, only to row back when taking power and suggest the issue should be resolved by negotiations.

A senior aide to Palestinian President Mahmoud Abbas, Nabil Abu Rdeineh, said Romney's statements were unhelpful, stood in the way of a peace settlement and "contradict the previous positions held by the American administration".

In an interview with CNN, Romney refused to be pinned down on whether he would recognize Jerusalem as Israel's capital if he beats Obama and wins the White House.

"A nation has the capacity to choose its own capital city, and Jerusalem is Israel's capital," he said.

Pressed on whether he would make the move on becoming president, Romney said:

"I'm not going to make foreign policy for my nation, particularly while I'm on foreign soil. My understanding is the policy of our nation has been a desire to move our embassy ultimately to the capital."

Seeking American Jewish and fundamentalist Christian votes, Romney has criticized Obama on Israel, alleging last year that the president had "thrown Israel under a bus" in pushing hard for a two-state solution between Israel and the Palestinians.